In
Farro v. Schochet, the Second Department recently held that §1002 of the NY LLC Law restricted a dissenting member’s remedy to an appraisal for the fair value of his interest in the business after a freeze-out merger.[1] Thus, the Court reduced the legal remedies for a minority LLC member that lacked protections in the operating agreement against the merger.
Background on Freeze-out Mergers and Appraisal Remedy
A freeze-out merger typically involves controlling member(s) forcing minority member(s) out of a business by (1) creating a new business where the minority member(s) do not have a stake and then (2) using their controlling stake in the original business to merge it into the new business to freeze-out the minority member(s).
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For law bloggers, if there’s one thing more satisfying than writing about an important new court decision, it’s writing about an important new court decision that you won for your client.
Last week, the Brooklyn-based Appellate Division, Second Department, unanimously ruled in favor of my clients, construing for the first time at the appellate level two sections of New York’s LLC Law with profound effect on the ability of controlling members of LLCs to oust minority members by means of a cash-out merger.
First, reversing in part the lower court’s order, the appellate panel held that under